Earning ₹20 lakh a year is a proud milestone. It’s a strong indicator of career growth and financial stability. But as your income rises, so does your tax responsibility. To make the most of your hard-earned money, it’s essential to understand how your ₹20 lakh annual salary is taxed under the latest Indian income tax regulations for FY 2025-26 (AY 2026-27).
This guide breaks it down in simple, practical terms, including how much tax you may actually pay under both regimes and smart ways to reduce it.
Key Takeaways
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The Indian income tax system currently offers two choices:
Old Tax Regime: Allows multiple deductions and exemptions, such as HRA, LTA, Section 80C, and 80D
New Tax Regime: Offers lower slab rates but very few exemptions or deductions
Let’s see how they work for a salary of ₹20 lakh.
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Now that we understand how the two tax regimes work, let’s see what your actual tax on salary of ₹20 lakh annual salary looks like under each system.
The new regime’s slab structure is as follows:
| Income Slab | Tax Rate |
|---|---|
Up to ₹4 lakh | Nil |
₹4,00,001 - ₹8 lakh | 5% |
₹8,00,001 - ₹12 lakh | 10% |
₹12,00,001 - ₹16 lakh | 15% |
₹16,00,001 - ₹20 lakh | 20% |
₹20,00,001 - ₹24 lakh | 25% |
Above ₹24 lakh | 30% |
For a salaried annual income of ₹20 lakh under the new tax regime (AY 2026-27), assuming only the standard deduction is claimed (no other deductions are generally allowed in the new regime):
Taxable income = ₹20,00,000 − ₹75,000 standard deduction = ₹19,25,000
Base tax before cess (as per new regime slabs) = ₹1,85,000
Add 4% Health & Education Cess = ₹7,400
Total Income Tax on ₹20 Lakh Salary = ₹1,92,400 (no Section 87A rebate, as taxable income > ₹12 lakh)
Old regime slabs remain the same:
| Income Slab | Tax Rate |
|---|---|
Up to ₹2.5 lakh | Nil |
₹2,50,001 – ₹5 lakh | 5% |
₹5,00,001 – ₹10 lakh | 20% |
Above ₹10 lakh | 30% |
Let’s assume:
₹1.5 lakh under Section 80C (PPF, ELSS, life insurance premium, etc.)
₹25,000 under Section 80D (health insurance premium)
₹50,000 standard deduction (salaried – old regime)
₹1 lakh HRA exemption (approximate, varies by rent and city)
Total deductions/exemptions = ₹3.25 lakh
So, your taxable income becomes:
₹20,00,000 − ₹3,25,000 = ₹16,75,000
Now apply the old tax regime slabs for individuals (non-senior):
Above ₹10,00,000 (₹6,75,000) at 30% = ₹2,02,500
Total tax before cess: ₹3,15,000
Add 4% Health & Education Cess on ₹3,15,000, which comes to ₹12,600.
Total Income Tax on ₹20 Lakh Salary = ₹3,27,600
This is your approximate tax liability under the old regime with these assumed deductions and HRA relief.
If you don’t choose between the old and new tax regimes while filing, the new regime applies by default unless you opt for the old one in time.
Source: ITD
Even at this income level, there are several legal and efficient ways to save tax:
A thoughtful mix of investments not only reduces tax but also builds long-term wealth.
Your tax on a salary of ₹20 lakh would hover around ₹3-3.2 lakh, depending on which regime and deductions you choose. The new regime suits those without major deductions, while the old one benefits planning-savvy taxpayers who invest strategically.
Either way, the goal isn’t just tax savings, it’s smart financial planning. Start by estimating your annual expenses, insurance needs, and investment goals, then align your tax-saving tools accordingly.
The new regime often saves more, but switch to the old if your deductions exceed ₹4-5 lakh annually. Calculate both on salary using the Income Tax e-filing portal.
Salaried individuals get ₹75,000 in the new regime and ₹50,000 in the old regime, directly reducing taxable income before slabs apply.
No. HRA, LTA, and most exemptions are unavailable in the new regime. Claim them only under the old regime with valid rent receipts.
Yes, up to ₹50,000 extra under Section 80CCD(1B) in the old regime; employer NPS contributions (14% for govt, 10% private) are deductible in both.
No surcharge kicks in below ₹50 lakh total income. Only 4% cess applies on the base tax.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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